Suburban Propane Gas Corp. v. Tawes

Collins, J., delivered the opinion of the Court. This is an appeal by Suburban Propane Gas Corporation, the taxpayer, appellant, from an order-of the Circuit Court for Montgomery County, affirming a final determination of the Comptroller of the Treasury, (the Comptroller), appellee. The taxpayer, a body corporate, filed an application for exemption from the use tax of cylinders, meters, regulators, valves, cylinder caps, delivery truck cylinders, and miscellaneous items used in the sale of propane gas, under the provisions of Code, (1951), Article 81, Section ⁸⁵ 370 (f), and Rule 62 of the Comptroller relating to the Maryland Retail Sales and Use Tax Acts, which follow: “370. (Exemptions) The use, storage or consumption in this State of the following tangible personal property is hereby specifically exempted from the tax imposed by this sub-title: * * * (f) Tangible personal property not readily obtainable in Maryland which is stored, used or consumed in this State by a person engaged in the business of rendering services, or manufacturing, compounding for sale, profit or use of any article, substance or commodity, if such tangible personal property enters into the processing of or becomes an ingredient or component part of the product or service which is manufactured, compounded or furnished and the container, label or the furnished shipping case thereof.” “Rule 62: Tangible personal property which is used, stored or consumed in Maryland, the sale of which is not subject to the sales tax, will not be subject to the use tax if: (a) The property is not readily obtainable in Maryland; and (b) The property is used by a person engaged in the business of rendering services, or manufacturing, compounding for sale, profit or use any article, and (c) The property enters into the processing of or becomes an ingredient or component part of the product or service which is manufactured, compounded or furnished, or the container label, or the furnished shipping case thereof. * *' * For the purpose of this rule property will be considered as entering into the processing of the product or service which is manufactured, compounded or furnished if the property is employed either directly or indirectly in the manufacturing, processing or compounding of property for sale or the furnishing of services for sale.” (Italics supplied here). ⁸⁶ A hearing was held before the Comptroller on the taxpayer’s application.

The testimony shows that the taxpayer purchases propane in liquid form, a derivative of petroleum, from the original producers thereof and stores the liquid in large storage tanks at principal distribution points. It is admitted that the equipment used and sought to be excepted is not readily obtainable in Maryland. Although as a general rule when the liquid propane is purchased it is already mixed with ethyl mercaptan, an odorant, as specified by the taxpayer, from time to time it adds ethyl mercaptan, when needed, as a safety measure. The taxpayer also mixes methanol with the liquid propane in order to prevent water therein from freezing, while being converted from a liquid to a gaseous form.

The liquid propane under variable, high pressure is brought by the taxpayer to the consumer’s premises, either in tank trucks or in tanks or bottles. When it is delivered by tank trucks it is transferred by a hose to tanks or bottles, owned by the taxpayer and which remain its sole and exclusive property, repaired and maintained by it, on consumer’s premises. When it is delivered in bottles, taxpayer’s full bottle is exchanged for the empty one. In order to convert the liquid propane into gaseous form, usable by the consumer, the taxpayer has a valve- or regulator in the bottles or tanks on the consumer’s property.

The size of these tanks, bottles, valves, and regulators depends upon the number, location and size of the appliances used by the consumer. The purpose of the valves and regulators is to reduce the pressure on the liquid in the tank or bottle. As the liquid is drawn through the valve or regulator, the pressure being reduced, the liquid propane vaporizes and becomes a gas ready for use. In practically all cases the gas passes through a meter where it is measured and the consumer pays for the amount shown on the meter.

The B.T.U. content of the gas is precisely the same when delivered to the consumer as when delivered to the taxpayer. The addition of the methanol does not form a new gas. From these ⁸⁷ facts the Comptroller concluded that the adding of the odorant and the anti-freeze and the changing from liquid propane to gaseous propane did not constitute compounding or manufacturing. From that decision the taxpayer appealed under the provisions of Code, (1951), Article 81, Section 348, to the Circuit Court for Montgomery County.

The case was there decided on the facts set out in the opinion of the Comptroller. The trial judge found that there was a grave and serious doubt as to whether or not the taxpayer was engaged in “manufacturing” or “compounding”, and construing the exemption strictly against the taxpayer, by order affirmed the action of the Comptroller. From that order the taxpayer appeals. As the taxpayer must show that it manufactures or compounds before it takes advantage of “processing”, the question here presented is whether the addition of the odorant and anti-freeze to the liquid propane and the reduction of the pressure on the liquid propane in order to produce gaseous propane, constitutes manufacturing or compounding within the meaning of Section 370 (f), supra, and Rule 62, supra.

Of course, tax exemption statutes are to be strictly construed in favor of the State. The taxing power is never presumed to be surrendered. Every assertion that it has been relinquished must, to be effective, be distinctly supported by clear and unambiguous legislative enactment. To doubt an exemption is to deny it.

Clarke v. Union Trust Co. of D. C., 192 Md. 127, 134, 135 , 63 A. 2d 635 , and cases there cited; Comptroller of Treasury v. Crofton Co., 198 Md. 398, 404 , 84 A. 2d 86 ; Shaughnessy v. Linguistic Society, 198 Md. 446, 450 , 84 A. 2d 68 , and cases there cited. However, the tax exemption statute should not receive a strained or unreasonable construction that would defeat the purpose of the legislative enactment. John McShain, Inc. v. Comptroller, 202 Md. 68, 73 , 95 A. 2d 473 , and cases there cited. The taxpayer claims that the adding of the odorant for safety purposes, specified in its purchase, but oc ⁸⁸ casionally done by the taxpayer when found that the odor is not sufficient, and the adding of the methanol to. prevent freezing, constitutes compounding within the meaning of the statute.

Taxpayer cites no authority for this conclusion but relies on the following definitions: “Webster’s New International Dictionary, (1950 Ed.), defines ‘Compound’ as: 1. To put together, as elements, ingredients, or parts to ■form a.whole; to combine; unite. 2. To form or make up, as a composite product, by combining different elements, ingredients, or parts; as, to compound a medicine.” “Funk & Wagnalls New Standard Dictionary, (1949 Ed.), defines the word ‘Compound’ as:-1. To make, by the intermingling- or intimate combination of various elements or ingredients; combine or intermix as to form a composite product; as, to compound an ointment; * * *■ 2.

To mix, combine, or put together (various ingredients, elements, or parts), to form a compound substance, word, or thing; as, to compound drugs. * * *” “New Century Dictionary, (1936 Ed.), gives •as a definition of the word ‘Compound’: To-put together into a whole; combine; also, to make or form by combining parts, elements,etc.” . It was admitted by the vice-president and general- manager of the taxpayer that the addition of these two' substances did not change the B.T.U. content of' the gas and that the gas when delivered to the consumer was substantially the same gas as delivered- to the taxpayer. We are therefore of opinion that it is extremely doubtful whether the mixture here meets the definitions of “compounding” relied on by the appellant. The question is therefore further limited to whether the reduction of the pressure on the liquid propane in taxpayer’s containers, in order to produce gaseous pro ⁸⁹ pane for the consumer, constitutes manufacturing within the meaning of the aforesaid legislative enactments.

In the case of Carlin v. Western Assurance Co., 57 Md. 515 , relied on by the appellant, this Court held, in a suit on an insurance policy, that a flour mill driven by steam and furnished with a middling purifier, bran-duster, belt, and other machinery was a manufacturing establishment. That case is hardly helpful here and did not involve a tax exemption. In Baltimore v. State Tax Commission, 161 Md. 234 , 155 A. 739 , cited by the appellant, the only question presented was whether machinery, tools and materials, used in cutting up the hulls of steel vessels into sections suitable in size to be shipped to steel furnaces, were used entirely or chiefly in manufacturing, and thereby entitled to exemption under a Baltimore city tax statute. In holding that the exemption applied, this Court said: “It is one of the stages, and a very important one, in the conversion of a large mass of steel into a